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Sector
Technology
Size
Large Cap
Market Cap £6.71bn
Enterprise Value £11.13bn
Revenue £11.82bn
Position in Universe 820th / 6393

Sultans of shrink pack more chips into smart wearables

Thu 30th July, 2015 10:59pm
By Michael Gold 
    TAIPEI, July 31 (Reuters) - The latest chapter in the 
miniaturisation of increasingly smart consumer electronics lies 
in the hands of chip packagers, an indispensable group of firms 
whose role in the supply chain alone is worth $27 billion. 
    Packagers like Taiwan's Advanced Semiconductor Engineering 
Inc (ASE)  2311.TW  receive chips from manufacturers and prepare 
them for device assemblers by, for instance, encasing them in 
metal and resin. 
    The advent of wearable devices, particularly Apple Inc's 
 AAPL.O  Apple Watch and its dozens of chips, pushed packagers 
to devise innovative ways of cramming ever-more communications, 
graphics and location chips into the tiniest of spaces. 
    To serve this market, which researcher IDC expects to grow 
173 percent to $17.1 billion in 2015, ASE and rivals like 
Taiwan's Siliconware Precision Industries Co Ltd  2325.TW  and 
Amkor Technology Inc  AMKR.O  of the United States have come up 
with an assembly process known as System-in-Package (SiP). 
    "SiP bundles a ton of components into one simple 
plug-n-play, almost like a Lego block," said Taipei-based 
semiconductor analyst Randy Abrams at Credit Suisse. 
    In SiP, the packager finds the optimal arrangement for 
multiple chips, akin to solving a three-dimensional jigsaw. The 
tightly packed formation allows for easier communication between 
chips, yielding quicker, more energy-efficient devices. 
    "The SiP inside the Apple Watch was unprecedented," Vice 
President Jim Morrison of analysis firm Chipworks told Reuters. 
Chipworks found as many as 40 chips in the hermetically sealed 
pod, more than double any other package it had seen before. 
     
    INTERNET OF THINGS 
    ASE aims to be a one-stop-shop for firms planning to stuff 
dozens of chips into wearables such as wristbands, but also into 
home appliances and even light bulbs as more and more goods go 
online - a concept known as the Internet of Things (IoT). 
    "We spent up to seven years developing the design" of SiP, 
said ASE Chief Operating Officer Tien Wu, who targets riches 
promised by an IoT market IDC values at $1.7 trillion by 2020. 
    ASE commands a leading 19 percent of the packaging market. 
It supplies a large share of SiPs for the Apple Watch as well as 
for the fingerprint sensors in Apple's iPhones, analysts said. 
    It booked revenue growth of 19 percent in January-June in 
part due to SiP, and forecasts SiP business to double to 20 
percent of revenue in 2015. But with costs of SiP higher than 
those of conventional chip packaging, profit margins may narrow. 
First-half net profit fell 5.1 percent, ASE said on Thursday. 
    Analyst Carlos Peng at Fubon Securities said ASE's gross 
margin on the Apple Watch SiP is 7 percent to 8 percent lower 
than the firm's overall 20 percent margin booked last year. 
    "In an economy of scale it's still money-making," Peng said. 
    But SiP is not the smallest solution. A costlier approach is 
System-on-Chip (SoC) in which a single chip performs multiple 
functions. Though the technologically more complex SoCs are 
capable of fewer functions, they could draw device makers away 
from SiPs if the cost of incorporating functions declines. 
    Packagers may then lose out as the financial benefits of 
SoCs would go to SoC designers such as Qualcomm Inc  QCOM.O  and 
MediaTek Inc  2454.TW . For now, however, SiPs are cheaper and 
easier, analysts said. 
    "We're building a new business model" with SiP, said ASE 
Chief Financial Officer Joseph Tung. 
 
 (Reporting by Michael Gold; Editing by Christopher Cushing) 
 ((michael.gold@thomsonreuters.com; +886225004899; Reuters 
Messaging: michael.gold.thomsonreuters.com@reuters.net)) 
 
Keywords: TAIWAN CHIPS/
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